Polish Yields Fall to Three-Month Low on Cyprus, Zloty Weakens

Yields on Polish government bonds
fell to a three-month low as an unprecedented levy on bank
deposits in Cyprus threatened to reignite Europe’s debt crisis
by triggering a run for safer assets.

The yield on Poland’s two-year bonds fell five basis
points, or 0.05 percentage point, to 3.17 percent at 1 p.m. in
Warsaw, the lowest since Jan. 2 and seven basis points above a
record low from Dec. 21. The zloty weakened 0.2 percent to
4.1559 against the euro, data compiled by Bloomberg show.

Cypriot President Nicos Anastasiades will ask lawmakers in
Nicosia to back a plan to raise 5.8 billion euros ($7.5 billion)
by taking a piece of every bank account in the island nation.
The announcement of the plan to tax deposits sent yields on
Germany’s two-year notes below zero for the first time in more
than two months, while yields on Spanish and Italian bonds rose
as investors sought haven assets amid concern the levy would
spark a run on Cyprus’s banks.

“Poland is still in the better basket, we are more closely
correlated with the core markets rather than the periphery,”
Bartlomiej Wit, chief fixed income and interest rate derivatives
dealer at ING Bank Slaski SA (ING) in Warsaw, said by phone today.

Investors are awaiting the publication of Polish jobs, wage
and core inflation data at 2 p.m. in Warsaw to check for signs
that the economy is starting to bottom out.

Stagnation Scenario

It is more probable Poland’s economy will stagnate rather
than rebound in the second half of 2013, in which case borrowing
costs will need to be cut by further 50 basis points to 2.75
percent, Monetary Policy Member Andrzej Bratkowski told PAP
newswire.

Poland’s economy should expand by at least 1.5 percent this
year if leading indicators prove reliable and Germany avoids a
contraction, Jan Krzysztof Bielecki, the chief economic adviser
to Prime Minister Donald Tusk, said at a Bloomberg Editorial
Board discussion on March 15.

Poland won’t seek a weaker currency to boost growth as the
economy is set to benefit from the government’s investment
program and easier access to credit, Deputy Finance Minister
Janusz Cichon said in an interview on March 14.

The zloty is “quite stable” and its current exchange rate
is “favorable” for the competitiveness of Polish exporters,
Cichon said.